All Forum Posts by: Carl Millsap

@Becky Negrillo I don't know what your investment goals are so I can't say if the $9k mentoring program is a good investment. What do you want to get out of the program?

BP, youtube, and a few other sites are good resources to learn real estate investment. You can buy a lot of books for $9k. 

 There are countless people who bought into a mentoring program who never took action. I recommend you read / follow a couple of the forums in BP to learn and I think you'll find that you can get a great education here. You can also find a lot of the forms, tools etc. here as well.

The key is to take action on what you learn whether it be from BP or the mentoring program, because ultimately that will determine if the time / $ spent was a worthwhile investment. 

@Danielle Huang I don't know what the CAP rate is in DFW but I recommend you call a few commercial brokers in the area. Also check: apartmentpropertyvaluation.com

As for expense totals if the roof and HVACs are new then your expense totals might be in that range but things to consider: 

1. How much are you setting aside for maintenance reserves per door per month? i.e. $250 per door etc.

2. Did you factor in management expense?

3. Did you verify what taxes will be based on purchase price? When will tax assessment / new rate kick in?

4. Are you paying for any of the utilities? Can you bill utility expense back to the tenants (RUBS)?

Rule of thumb use 50% of net annual income for your expenses to see if your numbers work. If you come in below this then you know you're good. Also in this current environment are you factoring for economic vacancy?

Is the DSCR 1.3 or higher? What is your Cash on cash return? What is your criteria?

Just some things to consider. Good luck.

@Andrew Peters I'd look for something that needs cosmetic repairs ie. a coat of paint, new floors, counter tops etc. for my first project. 

Keep looking something will come your way.

Good luck. 

@Andrew Peters do you have any experience w/ rehabs?  A house w/ fire damage is tricky. 

If you don't have any experience I wouldn't tackle this as my first project. Can it be done....yes, but the risk / potential to lose a boatload of money is greater.

For starters I would completely gut the house to the studs to ensure I find and treat any potential mold issues and electrical issues. And since its to the studs I'd check plumbing etc. and then put it back together. 

When the fire dept. came out they just sprayed that house to kill the fire so water maybe sitting behind the walls etc.

You would then need to check all the electrical wires and potentially have to bring everything up to code depending on how old the house is. The list goes on. Let's just agree there is a lot involved and with an ARV of $65k, you would have to buy the house at $5-15k and keep expenses below $20k to make any money on it.

Again, it's not impossible but I'd recommend taking on something with cosmetic fixes (i.e. painting, flooring) before I jumped into a house fire renovation. 

@Danielle Huang when it comes to multifamily properties like the one you're looking at comps aren't a comparison like single family / duplex units /small multifamily ie. 4plex. The purchase price of that multifamily should be based on the net operating income that the property produces. 

Take the Gross Annual income minus vacancy rate to get net annual income. Then subtract all the expenses from the net annual income to determine the net operating income(NOI). Finally multiply the capitalization (cap) rate that you want to determine the price.

Example: A property that has a Gross potential annual income of $288,000 but has a 10% vacancy rate generates $259,200 in net annual income. Let's say the total annual expenses are 50% ($129,600) of the net annual income that leaves a $129,600 net operating income. 

If we take the net operating income of $129,600 x a 9% cap rate the purchase (offer) price would be $1,440,000.

If the cap rate is 8% x $129,600 the price would be $1,620,000.

If the cap rate is 10% x $129,600 the price would be $1,296.000.

The lower the cap rate the lower your risk, which increases the price. A higher cap rate means higher risks.

Two identical multifamily buildings like the one you're looking at can generate different net operating incomes. 

Ask the owner or selling broker for the trailing 12 (T-12) which is essentially the total revenue w/ all expenses for the past year. That will give you an ideal of what type of net operating income it generates. Don't take that T-12 as gospel, you will have to research that information and come to your own conclusion. 

@Bassim Audi here are a few things:

1. Check with the housing authority that manages Sec. 8 to see what notification timeline you have to provide for a rent increase. I’n our area it’s 60 days. We notify the tenant and the housing authority.

2. Send / deliver the tenants a general letter once you purchase the building introducing your company, contact info and ask if they have any outstanding maintenance issues.

3. Let each tenant know that your company needs them to sign a new lease by a specific date and that rent will increase to $xxx. Ask them to notify you by xxxx date if they don’t intend to sign a new lease so you can begin the process to end their tenancy via section 8. Ensure you know what that process is as well.

We don’t normally raise rents to market if there is an existing good tenant. We may raise the rent 35-50%. Count the cost of renovation vs. achieving market rent.

@Justin G. I have and use The SDA spreadsheet. How long have you had it? As part of the purchase you get updated versions as they are released.

You may want to send a question to his team to see if they can assist with your question.

@Kelly A Bergeron unless your lease specifically calls for a particular appliance by name, make, and model I can't imagine that your landlord has to replace them with the exact same thing or something similar. 

You can check your local laws (landlord & tenant act) but I'd be surprised if it mentions appliances. 

@Bill D. Screening hasn't changed. Still verifying employment, still calling past landlords, still running the numbers on their income vs. expenses. Still letting the data drive the decision...so far we are on track. 

The only change we've made is from 12 month leases to month to month. Pre-Covid we set initial leases at 12 months then it'd roll into month to month. But since the government has started limiting evictions, we've changed to a month to month lease...

A month to month lease allows you to evict for a reason besides non-payment. If you look at the past eviction restrictions and the current CDC order you can't evict for non-payment, but you can evict for not having a valid lease or any other lease violation. 

@Jesse Daconta @ Dave Foster Thanks for the reply, I appreciate the help.